Wonderla Holidays – IPO Review / Recommendation

April 21, 2014

Wonderla Holidays Ltd (Wonderla), founded in 2002, is one of the largest amusement park operators in India promoted by the same promoters as that of V-Guard Industries Ltd. The company, currently, owns and operates two amusement parks under the brand name ‘Wonderla’. The company also owns and operates a resort besides an amusement park in Bengaluru under the brand name ‘Wonderla Resort’, which has been operational since March 2012.

Wonderla has a proven track record of managing amusement parks with established brand equity. The company has been able to maintain high standards of safety and hygiene, which has been able to attract organized visits from schools, colleges and corporate segment.

Wonderla has developed an in-house manufacturing facility in Kochi to construct rides used in its amusement park. According to the company, the cost of in-house manufacturing a ride is almost a third of that of buying it from outside. Manufacturing capability has also helped the company to build its in-house maintenance capabilities, thereby reducing the cost of maintenance and down-time for a ride.

Wonderla has been able to generate operating cash flow at a CAGR of ~22% over FY09-13 [The Last 3 Years have been Flat] due to strong footfall growth and healthy EBITDA margin. Further, the business is a negative working capital business as most payments are received upfront. The company has a D/E ratio of 0.15x, as on FY13, which reflects a strong balance sheet.

On the bottom-line front, the company has reported Net Profit CAGR of ~32% over FY2009-13. Going forward, we believe that the company will be able to increase its operating margin and profitability owing to improvement in footfall capacity utilization and increase in occupancy level in Wonderla Resort.

Considering all of the above factors, we believe that the future growth potential of the company is promising. At higher price band, the stock trades at 17x its FY2014 annualized earnings, which is reasonable in our view, and hence, we recommend investors to SUBSCRIBE to the issue with a long-term investment objective.